Trade secretary Stephen Byers last week threw a lifeline to business failures as part of a shake-up of insolvency laws that aims to encourage entrepreneurs to start-up new firms.

The rule relaxation will allow bankrupts whose businesses fail for reasons beyond their control to return to set-up and trade again within six months of going under.

Tough provisions would also allow the Official Receiver to crack down on dishonest bankrupts with a 15-year ban in line with rules disqualifying company directors.

Insolvency specialists believe the measures will squeeze creditors and cause even more bankruptcies.

'If bankruptcy proceedings degenerate into saying "sorry, guv", and then back to business as usual, we are in danger of creating systemic bankruptcy and opening the floodgates for fraud', warned bankruptcy specialist Louise Brittain at Baker Tilly.

'The point of bankruptcy is to recognise the debt to creditors and make arrangements to pay them - otherwise, the process is pointless.'Bankrupts can also expect 'financial counselling' and exemption on up to £20,000 invested in a home if they can prove an equal amount was pumped into a business.

'We must remove the stigma surrounding bankruptcy', Byers said. 'Too many people are unwilling to set up their own business because they are worried about the consequences of failure.'

Roger Oldfield, vice-president of R3m the former Association of Business Recovery Professionals, also warned the measures would not protect creditors sufficiently.